Crop Insurance as a Risk Management Strategy in Bangladesh

Definition of peril: A particular land insured should be declared as belonging to a
weather station from where the climatic data will be collected to compare whether the
peril occurred or not. When a particular climatic parameter related to crop yield observed
in that weather station exceeds the limit of Weather Index as defined in the contract, it
will be considered as a peril to the entire area covering the station. However, the
definition of peril might still vary from land to land. For example, to estimate flooding
height the water level of the nearest gauge station can be collected but it will vary from
land to land depending on its altitude or elevation. In that case the altitude or elevation of
each of the pieces of land should be written there.
Sum insured: 70% of the last five years’ average production in the concerned field.
Premium: Premium rate will vary depending on the peril to cover and historical hydroclimatic
condition of the region. For example, for Sunamgonj, premium rate will be
higher for flood but lower for drought. While for Rajshahi, it will be higher for drought
and lower for flood. Rate will be fixed depending on the historical climatic record of the
region and its deviation from the weather index value of a particular peril. A per cent of
the premium should be directly subsidized by the government. It will encourage more
clients than before. Again, because of variation in premium level depending on disaster
risk and lower coverage of yield (60%), premium level will be tolerable to many of the
farmers with low risk so that they will be interested to buy a policy as well. This will
reduce the chance of adverse selection to a great extent.
Indemnity: For a particular station, if the calculated value of Weather Index exceed the
specified value, indemnity will be paid to all the farmers belong to that station. The
hydro-climatic parameters require to calculate the Index should be collected from the
specified weather station. If topographical data is used, for example, to calculate
inundation height – it should be compared with the water level data, etc. A committee
should be formed including experts in agriculture, water, meteorology, climate change
and disaster that’s decision will be final in that case.
Organizational structure
The organizations which have close contact with farmer groups or at least has a large network
of local offices at rural areas should be preferred for the program. If SBC like it to restart,
they should ensure such facilities or make contract with those types of local organizations to
work for them. As it is seen from the FGD and Questionnaire survey, even though NGOs are
working at grassroots level, farmers have still better confidence on Govt. organizations as
because at least those organizations will exist until the end. Whereas, unless those reputed
NGOs, there are always possibilities that small NGOs might bankrupt and not exist at all after
collecting premium. An incident like this happened at Lalmonirhat as it was mentioned in
FGD discussion. The best solution there should be involvement of both Public and private
organizations where government should provide adequate guarantee to grow confidence
among the farmers.
The loss assessment should be completely based on climatic records as observed to the
nearest station as mentioned in the insurance contract. There should not be any sort of visual
observation there, but solely on the climatic parameters observed. If in practice such
estimation is found faulty like there was losses of crop due to extreme weather but it still it
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